Legislation has now passed the Parliament in Australia which will reduce the rates of income and tax band thresholds.
The first change – an increase in the 32.5% tax band – comes into effect at the end of this week, ie on the 1st of July 2018.
New low and middle income tax offsets are also coming into effect from the start of the 2018/19 tax year.
Tax offsets are a direct credit against an individual taxpayer’s tax bill, unlike a tax deduction or allowance which reduces the tax bill by the amount of the allowance multiplied by the individual’s highest marginal tax rate.
A summary of the changes is as follows:
Tax rates and thresholds
2018/19, 2019/20, 2020/21, and 2021/22 income years
- Increase the top threshold of the 32.5% tax bracket from $87,000 to $90,000
2022/23 and 2023/24 income years
- Increase the top threshold of the 19% tax bracket from $37,000 to $41,000.
- Increase the top threshold of the 32.5% bracket from $90,000 to $120,000.
2024/25 income year onwards
- Increase the top threshold of the 32.5% tax bracket from $120,000 to $200,000.
New low and middle income tax offset
2018/19, 2019/20, 2020/21 and 2021/22 income years
Australian resident individuals (and certain trustees) whose income does not exceed $125,333 are entitled to the new low and middle income tax offset.
The entitlement to the new offset is in addition to the existing Low Income Tax Offset and is available on assessment after the lodgment of the annual income tax return.
If your income:
- does not exceed $37,000 you are entitled to $200
- exceeds $37,000 but does not exceed $48,000 you are entitled to $200 plus 3% of the amount of the income that exceeds $37,000
- exceeds $48,000 but not $90,000, you are entitled to $530
- exceeds $90,000 you are entitled to $530 less 1.5% of the amount of the income that exceeds $90,000.
New low income tax offset
2022/23, and later income years
A new low income tax offset will replace both the current Low Income Tax Offset and the low and middle income tax offset.
Consistent with the current Low Income Tax Offset, individuals with taxable income that does not exceed $66,667 (as well as certain trustees taxed on behalf of individuals) will be entitled to the new low income tax offset.
The amount of the new low income tax offset is $645 reduced by:
- 6.5% of the amount by which your income exceeds $37,000 but does not exceed $41,000 and
- a further 1.5% of the amount by which your relevant income exceeds $41,000.
More details are on the Australian Taxation Office website here.